When using the free-cash flow model, cash flows are discounted at the weighted average cost of capital (WACC) and when using the dividend discount model, dividends are discounted at….
Projects start every day, and many do not complete with successful outcomes. One reason is failure to identify risks and not plan for them. Without risk management, a project may fail.
Consider the following scenario:
A small construction company is contracted to build a strip mall in a rural town that is located more than 70 miles from the nearest big city. The last census reported 8,000 residents. The project manager only has experience working on large developments in cities with more than 50,000 residents and has never managed a project in a rural community. However, the project manager felt confident that he could handle the new project, and when drawing up the project plan, guaranteed it would be completed within six months. The project was scheduled to commence on January 2nd of the new year. The town’s mayor needed to sign off on the project and forecasted budget. But, the mayor noticed there was no formal contingency plan. The mayor met with the project manager and explained that it was best to have a contingency plan to guarantee a successful project. However, because the project manager was accustomed to working with larger-scale projects, he felt that he was more than qualified to handle all the risks involved and would be able to complete the project within the time frame.
Now, think about the risks involved with this project. As you know, nothing is a sure thing and the unexpected could always happen.
Write a 600- to 900-word paper identifying at least 10 potential risks in this development project. Create a contingency plan that outlines the risks and how you would respond to these potential risks.